On April 3, 2017, the United States District Court for the District of Columbia issued final judgment in the litigation regarding the Conflict Minerals rule (Securities Exchange Act Section 13(p)(1) and Rule 13p-1 thereunder) and remanded to the Commission.

The United States Court of Appeals for the District of Columbia Circuit had previously found that the Conflict Minerals rule “violate[s] the First Amendment to the extent the statute and rule require regulated entities to report to the Commission and to state on their website that any of their products have ‘not been found to be “DRC conflict free.”’”[1]

The Court of Appeals left open the question of whether this description is required by statute or, rather, is solely a product of the Commission’s rulemaking.[2] The Commission will now be called upon to determine how to address the Court of Appeals decision – including whether Congress’s intent in Section 13(p)(1) can be achieved through a descriptor that avoids the constitutional defect identified by the court – and how that determination affects overall implementation of the Conflict Minerals rule.

I have accordingly instructed our staff to begin work on a recommendation for future Commission action. In preparing its recommendation, the staff will consider, among other things, the public comments received in response to the January 31, 2017 request for comment.[3]

In addition, the Department of State has recently requested comment on how best to support the responsible sourcing of conflict minerals.[4]

The primary function of the extensive and costly[5] requirements for due diligence on the source and chain of custody of conflict minerals set forth in paragraph (c) of Item 1.01 of Form SD is to enable companies to make the disclosure found to be unconstitutional.

In light of the foregoing regulatory uncertainties, until these issues are resolved, it is difficult to conceive of a circumstance that would counsel in favor of enforcing Item 1.01(c) of Form SD.

[1] Nat’l Ass’n of Mfrs., et al. v. SEC, 800 F.3d 518, 530 (D.C. Cir. 2015).

[2] The Commission administers the federal securities laws in a manner consistent with our core mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. We have longstanding expertise in the disclosure of information that is material to investment decisions.

[3] Michael S. Piwowar, Statement on the Commission’s Conflict Minerals Rule (Jan. 31, 2017), available at https://www.sec.gov/corpfin/statement-on-sec-commission-conflict-minerals-rule.html.

[4] 82 F.R. 15266 (Mar. 27, 2017).

[5] See 800 F.3d 518, 525 (D.C. Cir. 2015); see also, e.g., letters from Graybar Electric Company, Inc. (Mar. 14, 2017); IPC – Association Connecting Electronics Industries (Mar. 16, 2017); Maryland State Bar Association (Mar. 17, 2017); New York Stock Exchange (Mar. 20, 2017); Washington Legal Foundation (Mar. 17, 2017).